In China, A Transition Of Power Begins

The contrast couldn't be clearer. On Tuesday night, crowds gathered to watch election returns. The candidates and their nervous supporters had no way to know who'd win. In Beijing, as the Communist Party Congress gathered, the government cleared Tiananmen Square to create an eerie scene one observer described as post-apocalyptic. China's new leaders are being chosen in secret and few have any idea how they proposed to direct policy.

Frank Langfitt, NPR's Shanghai correspondent, just arrived here from China. He's with us in Studio 3A. Frank, welcome home. Good to see you.

FRANK LANGFITT, BYLINE: Nice to be back.

CONAN: And at the speech today, as the events gone underway, this is the speech of the outgoing leader Hu Jintao, and he talks about the many problems facing the country. And, well, among them, right at the top of his list was corruption.

LANGFITT: Yeah. And corruption is a huge problem. And what he said was - he said nobody is above the law, and if we failed to handle this issue well, then it actually could be fatal to the party. And I don't think he's exaggerating it. I mean, I've covered China now off and on since the '90s, mid to late '90s. And the level of corruption is really extraordinary. It used to be gold Rolex watches, some money people would find. Now we're talking about - I'll give you an example. People's Bank of China recently had an estimate that 18,000 officials absconded out of the county with about $120 billion. Wen Jiabao who is the premier, outgoing premier - recently the Times had a terrific investigative piece, showing that his family's wealth was around $2.7 billion. So it's happening and it's sort of an enormous - the size is just extraordinary.

CONAN: Well, that Times story illustrates a couple of points, one of which it promptly got the Times banned, that edition.

LANGFITT: It did. Yes, which is predictable.

CONAN: Yeah. I think they knew that. And no one's above the law. This guy's family has got $2.7 billion.

LANGFITT: And that's the whole point. It's why that's such a striking quote for someone to say that no one is above the law. The fact of the matter, in China, the Communist Party is above the law. The courts follow what the party says in any sort of politically sensitive case. There is no rule of law. And so how you actually solve this problem is very, very difficult, especially with a party that does not want to share power, that feels that it can police itself. But increasingly, if you talk to ordinary Chinese, they don't feel that way. They do - even by blocking the Times site, most people don't know that story, but they do know the story of many other officials who have done wrong, you know, have done bad things. And so there is, I think, an emerging crisis of confidence in the party, particularly around the issue of corruption.

CONAN: Well, there is also the issue of legitimacy. And in the past, what, 30 years as China has gone through this extraordinary economic development, legitimacy has been - improved living conditions for its people. We tend to think of China as an economic juggernaut. Today in that speech, the outgoing leader said we want to double people's incomes and double China's economy in the next 10 years.

LANGFITT: I'll be interested to see how he does that. There are whole number of reasons why that may be very hard to do. One is the old economic model that brought the country to this point, which has done - you know, if you look at Shanghai, the differences are extraordinary, how much has changed and how much the places improved in many ways, economically. But that model, which was built on cheap labor, exports to EU and the U.S., things like that, that's no longer the case anymore. Labor's expensive now in China. It's not cheap. The people in the U.S. and the EU have big financial crisis. They can't buy a lot of things anymore.

So what China needs to do is change that model, and it's going to be a lot harder. That earlier model was, kind of, low hanging fruit. They're going to have to climb the value chain. They're going to have to become a lot more innovative. They're also going to have to take away the power of state on enterprises that control a large sector of the economy but aren't very efficient and are very closely tied to the Communist Party. So this next phase is not going to be as easy.

CONAN: I was listening back to some of the pieces that you've done in the past couple of months as we prepare for this broadcast. One of the things that China may have to change is the role of its banks. Banks like to take very few risks if possible, and that means investing in those big state-owned industries that have - well, they may not be spectacular returns anymore, but they are reliable.

LANGFITT: Yeah. The banks do extremely well. You and I could sit back and run those banks and be very, very wealthy, though, communist.

(LAUGHTER)

LANGFITT: The government sets the interest rates and so the banks can make a lot money. And if you're a Chinese person, you can't really get much of your capital out of the country. So where else are you going to put it?

One of the problems with the banks is that they tend to invest in state-owned enterprises. It's kind of part of their job, and it's less risky. But most of the jobs in China are really produced by private enterprise, as they are here in the United States. And it's much harder for them to get capital. So people are, in many ways, feelings that the economy is out of whack in a number ways and that there need to be some serious changes. The government knows this, but there are now very strong vested interests in state-owned enterprises and the banks. And so getting that done is not going to be easy politically.

CONAN: And even some of those big industries who are in the, I guess, the equivalent of a China's Pittsburgh, the Steel City, and a couple of vast enterprises there, well, they've gone under.

LANGFITT: The over-capacity in the steel is extraordinary, and the debt now is over $400 billion. It's actually owned by steel companies largely to Chinese banks. And it's going to take years to work through that over-capacity.

CONAN: Well, that's talking about economic reform, which will be difficult enough. The other issue, political reform. There is, of course, product of the success, a growing a middle class, which now has a growing interests in having a voice in its own affairs, in its domestic policy, maybe even in foreign policy. There's no way to do that.

LANGFITT: No, there really isn't. And I think that Hu Jintao is very clear about that as he's always been, which is the Communist Party is the center of the country.

CONAN: Leading role of the Communist Party.

LANGFITT: Absolutely. And what's interesting I think is - my sense in returning to the country in the last year or so - is that people in some ways feel like they're - I think people are outgrowing the system slowly in the sense that they're much more sophisticated. They're much better traveled. They know the way a lot of other countries work. They look around and say, if I live in Shanghai, I'm middle class. I'm driving a good car. I take vacations to Thailand. Why can't I have any say whatsoever in the government? It doesn't make sense to them. I don't get a sense that they're going to push this any time soon. A lot of people are still doing well economically. But you see this growing tension over time.

CONAN: There is also then the question of transparency of the political process. There are currently nine members of the Standing Committee - this is the nine people who control everything in China pretty much - and there will be two holdovers in maybe a smaller Standing Committee, seven people. But even those two holdovers - one of them the vice president, current, visited the United States a few months ago. So we got to see pictures of him. But these are pretty much faceless people.

LANGFITT: They are. It's really interesting. In Shanghai, for instance, I have far more conversations about the American election than I do about the 18th Party Congress which is going on right now. Why is that? Well, people know who's running in America. They actually - some of them are quite sophisticated. They know about the 99 percent, the 47 percent. They know the lingo. If you talk to - particularly a lot of middle- or lower middle-class people in Shanghai about the Party Congress, they say, this doesn't really have much to do with our lives. We really don't know who many of these people will be, what their policies would be. And it just seems like there's quite a distance between the rulers and the ruled.

CONAN: Well, do the people in the Great Hall of the People, those who are supposedly voting to elect these members of the Standing Committee, do they know what their policies are?

LANGFITT: I think they probably have a better sense. A lot of them are government officials. But the other challenge with a place like China is that if you want to get to the top, the best thing is for people not to know what your policies are going to be. You want to keep them as ambiguous as possible because it's a collective leadership. You don't, you know, you don't get openly elected. It's not like you can always hold office. And it's hard to get to the top.

And one thing is if you ever had any interest in political reform, that would be about the worse thing you would want to get out there because a lot of people are not interested, still not interested in political reform in the top of the party. And certainly, there would be factions who would want to fight that.

CONAN: When we had a transfer of presidencies in this country, when Barack Obama came in four years ago and George W. Bush got aboard the helicopter and left town, well, George W. Bush has pretty vanished from the American political leadership. He wrote a book, did pretty well with that. I gather he gives some speeches, but he plays no great part in the American political system. Bill Clinton has been playing a little bit more in this election.

But in the meantime, Mr. Hu Jintao on his way out - really, on the way out? He will be a member of the Standing Committee. He's not going to be president. He's not going to be chairman of the party anymore, but?

LANGFITT: He still may have a pretty strong role in the military. There's also the former president of China, who I covered back in the '90s, named Jiang Zemin who's from Shanghai. He has been front and center at the Party Congress. He's been out and about. He's in his mid-80s. He's playing role in terms of lining up who's going to take over. There's a lot of horse trading, but it's very, very opaque. And the average Chinese person really doesn't have any sense of where it's heading.

CONAN: So you're getting this new generation of younger leaders, but the gerontocracy, the old leaders, behind the scenes, they're still playing a role.

LANGFITT: I think some of them definitely are. And what they try to do is - obviously, they have large patronage, you know, organizations, and they try to protect that. And they also try to protect their own political interests and ideological interests. I mean, many of them do want to see the country improve, and they have their own ideas about how to do that. And they want the people in place who are going to kind of push the policies that they have supported and they think are best for China.

CONAN: After the Republican Party lost earlier this week, there's going to be a big argument, should they have nominated a real conservative as opposed to the more moderate Mitt Romney? Is there any kind of word as to whether there are similar arguments within the Chinese Communist Party? We heard all this speculation about Bo Xilai, the now disgraced former leader who's gotten expelled from the party, likely to be heading to prison too. And that he was a more radical, more Maoist, more left-wing, more revolutionary. And he represented that faction and that there are, indeed, factions they feel very different.

LANGFITT: They're absolutely factions. And I think that there - in the party, you could hear a wide variety of opinions about the direction of the country if you speak to people privately. And also in some of the Chinese press, you'll see this. What you don't see is sort of an open, freewheeling debate that you see here in the United States. But the party is pluralistic. I mean, there are, you know, it's 18 million people. There are a lot of different opinions. You just don't see it out there as much.

CONAN: NPR's Frank Langfitt, normally based in Shanghai, visiting here in Washington, D.C. You're listening to TALK OF THE NATION from NPR News.

And then there's the question - we're talking about China's internal policies one way or another. Did the outgoing leader talked about foreign policy? There's this dispute with Japan over the Senkaku Islands - I'm using the Japanese name because I can't pronounce the Chinese one - and there's the ongoing dispute over the groups of islands in the South China Sea.

LANGFITT: That's going to be something really worth watching, I think, in the next six to 12 months when we see the new people take over. They actually won't take over the government until March of next year. And what you've seen in the last six months - in particularly with the Philippines and Japan - both the Philippines and Japan were provocative. But what was interesting, we see how robustly China engaged them. And China now is clearly the dominant regional power there. And you're getting a sense that China is really flexing its muscles, and they're also watching to see what the United States does.

Of course, as we all know since the end of World War II, the United States has provided security across that region that has allowed all the Tiger economies, the Chinese economy to grow dramatically. The didn't have to pour lots of money into the military, but China now is the second largest economy in the world. It's pouring a lot of money its - into its military. And as I've traveled in the region, particularly in Singapore, you hear more and more people thinking that China wants to have a sphere of influence. This is an area that the United States has dominated, and it's going to be very interesting to watch how this works out. It's not clear what's going to happen.

CONAN: Exactly what's going to happen in Japan either, a still major economy with a likely new prime minister down the road who is much more of a nationalist. So we're going to have to see how that plays out.